Academic journal article American University Business Law Review

Sec Regulation of Foreign-Domiciled Investment Advisers: A Study of the Policy Vision Inspiring the Unibanco Letter

Academic journal article American University Business Law Review

Sec Regulation of Foreign-Domiciled Investment Advisers: A Study of the Policy Vision Inspiring the Unibanco Letter

Article excerpt

Investment advisers ("advisers") registered with the Securities and Exchange Commission ("SEC") now manage more than $70 trillion in assets for more than 35 million clients.1 Growing numbers of foreign-domiciled advisers are seeking access to this expansive market. Over the last two years, the number of foreign asset managers registering with the SEC has grown by an annual rate of 7.7-8.5%o.2 This trend is not new. As early as the 1980s, foreign-domiciled advisers began to seek access to the market for U.S. advisory services.3 These advisers pose a difficult regulatory problem. Pursuant to the Investment Advisers Act of 1940 ("Advisers Act" or "Act") the SEC regulates advisers.4 However, when foreign-domiciled advisers register with the SEC, they straddle the international border. While the SEC regulates them, they can also have significant foreign operations and client relationships. How should the SEC account for these advisers' foreign activities in its regulation and oversight? This Article studies the policy-making process in which the SEC set out to answer that question.

As described more fully below, the fundamental regulatory policy that eventually emerged in this area was set out in an informal staff position issued in 1992 known as the Unibanco letter.5 Over the years the Unibanco letter and its progeny6 have drawn considerable attention from commentators, regulators, and practitioners. During the 1990s, a key period in this process, commentators recognized that the regulation of foreign-domiciled advisers played a role in the SEC's adaption to the global market.7 More recently, the foreign reach of the Advisers Act has again drawn commentary as both the Supreme Court and Congress have addressed relevant legal doctrines.8 Further, based on the Dodd-Frank Act of 2010,9 the SEC engaged in rulemaking that cited to and relied upon the Unibanco letter's policy.10 In March 2017 the SEC staff issued an information update for advisers relying on the Unibanco letters with suggestions on how they could document their compliance.11 Finally, practitioners' guides have offered hands-on practical advice to advisers, both upon the initial issuance of the Unibanco letter,12 and upon new developments.13

This Article takes a different approach. It focuses on the policy vision that inspired the Unibanco letter, and continues to be reflected in its progeny. The Unibanco letter, this Article suggests, was motivated by a multi-faceted policy vision that appeared unevenly in the public record. Some of its elements were made explicit, some appeared only as tantalizing hints that require further explanation to be understood, and some were practically invisible. To explore the SEC's development of this policy vision this Article relies on interviews with the leading SEC participants.14 With interviews it has been possible to more fully identify the pressures working on the agency and the vision that inspired its response. Beyond the worthy goal of adding to our understanding of this important area of international regulation, understanding the policy vision inspiring the Unibanco letter will enhance our ability to interpret and apply it, and its progeny, as developments in the wider world continue to unfold.

After this Introduction, Part I of this Article summarizes the Act, the SEC's regulatory regime for advisers, and how the agency established an early border regime that was consistent with the primary contemporary mode of communication, i.e., the mails. Part II discusses the challenges to this regime that arose in the 1980s, in the wake of new technologies and internationalization, the efforts of the SEC staff to respond through an informal staff position known as the Richard Ellis letter,15 and the pressures that built against that position through the need for foreign enforcement cooperation, the threat of foreign multi-lateral intervention during the Uruguay Round of trade negotiations, and business pressures from foreign advisers that wished to enter the U. …

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